Question

- Consider two polluting firms. The marginal cost of abatement
for firm 1 is
*M**C**1**=**e**1**+ 300*, and the marginal cost of abatement for firm 2 is*M**C**2**= 3**e**2*, where*e**1*and*e**2*are the tons of pollution abatement by firms 1 and 2, respectively. Baseline pollution levels are*b**l**1**= 2000*and*b**l**2**= 2000*.

Suppose the government sets a pollution reduction goal of 1600 total units of abatement.

- Write down two equations that ensure that the goal will be met cost-effectively. Explain in words what each equation ensures.

- Solve the equations for the cost-effective abatement allocation
*e**1*and*e**2*.

- Suppose that the government wants to achieve this abatement level with a pollution tax. What tax rate (in dollars per ton) should be levied? How much tax revenue will be raised from each firm?

Answer #1

Suppose there are two firms: Firm A and Firm B. These firms are
each emitting 50 tons of pollution. Firm A faces marginal abatement
cost MACA = 6A and Firm B faces marginal abatement cost MACB = 12A
where A is tons of pollution abatement. The government wishes for
the total amount of pollution to be 80 tons.
1. (2 points) At the cost effective allocation of abatement, how
much does Firm A abate?
2. (2 points) What tax per...

Two polluting firms emit 200 tons of SO2 each, with
Marginal Abatement Costs given by MAC1= 2X1
and MAC2= 3X2, respectively. Xi
represents the level of abatement for each firm i, in
tons. The government wants to reduce total SO2 emissions
by 30% and decides to impose a uniform cap on emissions, with each
firm receiving 140 allowances for free (firms don’t pay for
allowance).
What is the market price of SO2 abatement?
How many permits are traded between firms,...

Two polluting firms emit 200 tons of SO2 each, with
Marginal Abatement Costs given by MAC1= 2X1 and MAC2= 3X2,
respectively. Xi represents the level of abatement for each firm i,
in tons.
The government wants to reduce total SO2 emissions by
30% and decides to impose a uniform cap on emissions, with each
firm receiving 140 allowances for free (firms don’t pay for
allowance).
a) In a first moment assume polluters are not allowed to
trade, so each firm...

Suppose there are two firms: Firm A and Firm B. These firms are
each emitting 50 tons of pollution. Firm A faces marginal abatement
cost MACA = 6A and Firm B faces marginal abatement cost MACB = 12A
where A is tons of pollution abatement. The government wishes for
the total amount of pollution to be 80 tons.
1. (1.5 points) What is the total cost of abatement if the
government mandates that Firm A abate 20 tons (such that...

Suppose that two firms emit a certain pollutant in Shreveport,
Louisiana. The marginal cost (MC) of reducing pollution for each
firm is as follows: MC1 = 3e1 and
MC2 = 45e2, where e1 and
e2 are the amounts (in tons) of emissions reduced by the
first and second firms, respectively. Assume that in the absence of
government intervention, Firm 1 generates 500 units of emissions
and Firm 2 generates 500 units of emissions.
Suppose Shreveport regulators decide to reduce total...

Assume there are two polluting firms in two different cities. In
the business-as-usual outcome, Firm #1 would emit 20 units of
pollution (e1=20) and Firm #2 would emit 20 units of
pollution (e2=20).
Additionally, assume the marginal abatement costs for Firm #1
and Firm #2 are given below: MAC1 (x1) =
0.5x1 & MAC2
(x2) = 2x2
This pollutant is known to cause adverse health effects when in
high concentrations. Since the firms are in different cities,
assume the marginal social benefit...

Two polluting firms can control emissions of a pollutant by
incurring the following marginal abatement costs: MAC1 = $300?1,
and MAC2 = $100?2 where ?1, and ?2 are the amount of emissions
abated (i.e., pollution controlled) by firm 1 and firm 2
respectively. Assume that with no abatement of emissions at all,
firm 1 would release 15 units of pollution and firm 2 would release
10 units, for a total of 25 units. Assume the target level of
abatement is...

A policy has been implemented to control pollution from two
firms. The marginal cost of abatement for firm 1 is $5/ton at its
choice of emissions. The marginal cost of abatement for firm 2 is
$3/ton at its choice of emissions.
What is true about this policy?
This policy is optimal
This policy is inefficient because both firms should increase
their abatement
The policy is inefficient because firm 1 should increase its
abatement and firm 2 should decrease its abatement...

(c) The aggregate marginal cost function for this two-firm
industry is: MC = 3Q Suppose the marginal benefit of pollution
control is given by: MB = 35 − 0.5Q What is the efficient level of
abatement?
(d) What is the relationship between cost-effectiveness and
efficiency? (e) What pollution tax would yield the efficient level
of abatement you found in part (c)? If the pollution charge is
levied on all units of emissions, how much revenue would the
government receive?
(f)...

marginal abatement cost curves for polluters 1 and 2 :
MAC1=10-e1 and MAC2=8-e1.
* How much does polluter 1 and polluter 2 pollute
without government intervention?
* This level of pollution should be reduced by 50%.
What are the marginal and total abatement costs of polluters 1 and
2 if a command and control policy is applied?
* What is the optimal outcome, or which allocation of
emissions minimize the abatement costs? Please calculate the total
abatement costs for the...

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